Grant Thornton LLP and two of its partners agreed to settle SEC charges that they ignored red flags and fraud risks during audits of two publicly traded companies that wound up facing SEC enforcement actions for improper accounting and other violations.
Grant Thornton admitted wrongdoing. It paid a $3 million penalty and forfeited about $1.5 million in audit fees and interest.
Melissa Koeppel, 54, was an engagement partner on deficient audits in 2009 through 2011 for senior housing provider Assisted Living Concepts (ALC) and alternative energy company Broadwind Energy.
Jeffrey Robinson, 63, was an engagement partner on the ALC audits.
Without admitting or denying the SEC’s findings, Koeppel agreed to pay a $10,000 penalty and be suspended from practicing before the SEC as an accountant for at least five years.
Robinson agreed to pay a $2,500 penalty and be suspended from practicing before the SEC as an accountant for at least two years.
Last December, the SEC charged two former ALC executives with fraud for making false disclosures and manipulating internal books and records by listing fake occupants at some senior residences to inflate accupancy rates.
Earlier this year, the SEC charged Broadwind and senior officers with failing to disclose that reduced sales were damaging the company’s long-term financial prospects.
An SEC investigation blamed Grant Thornton and the engagement partners for the deficient audits of both companies.
Grant Thornton, Koeppel, and Robinson were aware of “repeated red flags” surrounding ALC’s claim that it should treat ALC employees and other non-residents as occupants of its senior housing facilities.
The Grant Thornton partners never took “reasonable steps to determine . . . that employees whom ALC claimed to be occupants of the facilities were actually staying there,” the SEC said.
During the Broadwind engagement, Grant Thornton and Koeppel “relied almost exclusively” on unsupported management representations that a $58 million deterioration in customer orders had not occurred ahead of a public offering.
Broadwind’s registration statement for the offering “was incomplete and misleading” because it omitted the impairment, the SEC said.
In October, the SEC charged Grant Thornton India LLP and Australia-based Grant Thornton Audit Pty Limited with auditor independence violations.
Two Grant Thornton Mauritius partners served on the boards of Mauritius-based subsidiaries of companies that were Grant Thornton audit clients. The partners performed non-audit services prohibited under the SEC’s auditor independence rules
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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.